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How credit cards can help you beat inflation

Yahoo Personal Finance· Getty Images
Updated 6 min read

From groceries to gas, everything seems more expensive right now. Although inflation has cooled from its height of 9.1% in 2022, the current rate is still higher than the Federal Reserve's goal. As of June 2024, prices were 3% higher compared to one year ago.

Using a credit card for your routine purchases can help reduce the impact of inflation on your money. With the right card, you can take advantage of special financing options, low rates, and added rewards to stretch your budget.

Inflation refers to the change in prices over time. Government policymakers and regulators judge the current inflation rate by watching the prices of various goods and services, such as fuel, groceries, and utilities.

When inflation is high, it erodes the value of your money since each dollar is worth less than it was previously. For example, if the cost of an item was $1 in 2014, it would cost about $1.34 today — a cumulative increase of about 34%. Unless your salary kept pace with that increase, your income wouldn't stretch as far as it used to, making it more challenging to cover your bills.

Some level of inflation is expected, normal, and even healthy for the economy. The Federal Reserve aims to keep inflation around 2%. When inflation begins to get too high, it will institute new policies and rate hikes in an attempt to reduce it.

A credit card can help you fight inflation in the following ways:

Credit cards can have sky-high annual percentage rates (APRs). According to the Federal Reserve, the average APR for cards that assessed interest was 22.76% as of May 2024.

However, some credit cards have special introductory APRs that give you a lower rate for a limited time. For example, new cardholders who receive the Capital One SavorOne Cash Rewards Credit Card could take advantage of 0% APR for 15 months on balance transfers and purchases. After the intro period expires, the standard APR will apply.

Read more: Capital One SavorOne Cash Rewards review

These offers give you time to pay down your balance without interest and get out of debt faster, freeing up cash for other goals, such as saving or investing. You can also use an offer like this to make a large purchase and pay it off over time without interest fees.

Many credit cards have special financing options that function like buy now, pay later programs. These typically allow you to split up a large purchase into monthly installments at 0% APR. However, these plans often have a small monthly fee.

For example, Blue Cash Preferred? Card from American Express cardholders can use Amex’s Plan It feature to pay off an eligible purchase over 12 months. Plus, Amex waives the payment plan fees on new plans set up within the first 12 months of account opening.

By using these programs, you can use interest-free financing to make major purchases, such as new appliances, and keep cash free for other expenses or emergencies.

If you pay off your credit card statement balance in full each month, you can use your card to earn valuable rewards, including cash back or points, without paying interest. You’ll be rewarded for your routine, monthly expenses, such as your utility bills and groceries.

For example, the Chase Freedom Unlimited card offers 1.5% cash back or more on all purchases. If you spent $1,000 per month with your card, you could earn $180 in cash-back rewards over one year.

Read more: Chase Freedom Unlimited vs. Freedom Flex

Taking advantage of credit card rewards helps you get more value from your money. You can redeem your rewards for deposits to your savings account or statement credits to pad your budget.

Some credit card issuers, such as Chase and American Express, offer shopping portals with exclusive deals and automatic discounts. In July 2024, for instance, you could qualify for $75 in cash back after spending at least $350 on an Avis rental car through Amex Offers.

When you already have a purchase planned, these portals can help you stretch your dollars further.

If you're shopping for a new credit card, you may benefit from welcome offers offered only to new cardholders. These special offers give you bonus cash back, airline miles, or points if you meet the cards' spending requirements within a specific period.

If you open a Capital One Quicksilver Cash Rewards Credit Card, for instance, you can earn a $200 bonus if you spend $500 or more on new purchases within the first three months.

Read more: Capital One Quicksilver review

Welcome bonuses can typically be redeemed for cash back, gift cards, travel, and more. Just be sure you can comfortably meet the bonus’s minimum spending requirements. If you have to go into debt to earn the bonus, you could end up in a worse spot than where you started.

Although credit cards can be useful tools to combat inflation, maximizing their benefits requires some extra work.

For credit cards to help you beat inflation effectively, you must avoid paying interest charges. Aim to pay off your statement balance in full each month by the bill due date so you can earn rewards without paying high interest fees.

Read more: What happens if I only pay the minimum payment on my credit card?

Although there are several cash-back cards with a flat rewards rate, some of the best cards have staggered or rotating rewards categories that give you a higher reward rate on certain expenses, such as groceries or dining out. If you have multiple cards, noting which cards offer the highest reward rate in each category can help you max out your earnings.

Some people find it helpful to manually track their credit card reward categories on their phones, but you can also use apps such as AwardWallet or MaxRewards to manage your cards.

If your credit card issuer has a shopping portal or discount page, download the issuer's app or install its extension on your browser. Whether you're planning to buy a new laptop or pair of jeans, these steps will allow you to qualify for discounts on your purchases automatically.

Credit cards can effectively manage your spending and earn rewards for your planned purchases. But as with any financial product, use caution. Credit cards can make it easy to spend more than you intended, and if you carry a balance, the card's APR will be much higher than the current inflation rate.

Creating a budget and tracking your spending can ensure you stay within your means and avoid unnecessary interest charges.

If creating spreadsheets sounds like a nightmare, you can use a budgeting app to help you manage your finances.

This article was edited by Alicia Hahn

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